The Differences Between FHA and Conventional Mortgages

May 15, 2013 Marc Edelstein FHA mortgages in Michigan, First Time Home Buyers, Michigan Mortgage Banker, Michigan Mortgage Lender, Mortgage Tips, Oakland County Mortgage Banker, Wayne County Mortgage Banker 0 Comments

The two most common types of mortgages customers ask about are the FHA and Conventional mortgages. And at their core, they are both very similar. They are both a type of loan which provides money to purchase a house. They both determine eligibility through debt to income and loan to value ratios, they both use credit as a qualifying factor, and they both have down payment requirements. They are fundamentally very similar loan programs, but yet there are some stark differences in who might want to use each.

For starters, FHA loans only require a down payment of as little as 3.5%. In contrast, a minimum down payment of 5% is required for a conventional mortgage. Further, with FHA loans, there is always mortgage insurance – a monthly additional charge which allows the government to insure your loan in case of default. Conventional loans, meanwhile, do not have insurance unless a borrower puts down less than 20%. There are also different upfront costs; FHA loans generally have more expensive closing costs than conventional loans.

But while FHA loans do have higher costs up front and potentially higher costs from mortgage insurance, they also allow borrowers with certain challenges to purchase a house, and are particularly popular with first time home buyers. This is because there are lower credit requirements, lower debt to income requirements, they allow for lower down payments, and they often have more competitive rates for customers with lower credit.

So the point of this all is that the only real way to determine which loan program makes the most sense for you is to speak with a qualified loan officer about your situation. If you would like more information on which loan program is best suited for you, please contact me. And if you have any questions or comments about the differences between FHA and conventional mortgages, please leave a comment.

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